HDFC, not SBI, is India’s most valued bank today
One of the first things that Pratip Chaudhuri did after he took over as SBI chairman was to withdraw the teaser loans for home buyers, a cracker of a product that had fetched the bank some R25,000 crore of assets.RBI wasn’t convinced it was a good idea and Chaudhuri realised that frequent run-ins with the regulator couldn’t be good for his career. Indeed, Chaudhuri’s innings got off to a good start and while there were those who accused him of ‘kitchen sinking’—profits collapsed 99% in the three months to March 2011 to near-zero levels—there was little doubt pensions of close to R8,000 crore needed to be provided for, even if not all in one go. Surprisingly, however, the early prudence in accounting didn’t last long—provisioning for loan losses has been low throughout his tenure, despite rising delinquencies. In Q1FY12, the otherwise good results were marred by higher slippages—gross NPAs increased 10% sequentially. In the following quarter too, the decent profit numbers were overshadowed by higher NPAs, up 22% sequentially, while coverage dropped to 63%. The bank, somehow hasn’t found it necessary to increase coverage which has remained inadequate—at well below 70% levels. It wasn’t really surprising therefore, that Moody’s downgraded the lender in October 2011, from C- to D+ citing inadequate capital and asset quality concerns—SBI’s Tier I capital slipping below 8% to 7.6%, of course, was also because the government failed to provide the funds or allow SBI to raise them in the market. On the latter count, the ratings agency seems to have been more than prescient because while Chaudhuri has consistently downplayed the NPA cycle—saying on several occasions it had peaked—the numbers have only deteriorated. In Q1FY14, gross NPAs were 5.56% and fresh slippages almost R14,000 crore. Chaudhuri needed to have concentrated on the quality of the loan portfolio rather than on profit margins or on growing the loan book. Indeed for a chairman who started out mending fences with the regulator, Chaudhuri appeared, once too often to be spoiling for a fight with the RBI on issues like the Cash Reserve Ratio (CRR).
The markets clearly haven’t taken kindly to such complacence; SBI’s market capitalisation has fallen by some R63,000 crore since he took over in April 2011 to R1.15 lakh crore now and it’s no longer the country’s most-valued bank since HDFC Bank commands a market capitalisation of R1.48 lakh crore—while SBI has lost R63,000 crore of market cap, HDFC Bank has gained R42,000 crore. Chaudhuri’s tenure ends with another downgrade from Moody’s—to the unsecured debt and rupee deposits—which has chosen to lower the financial outlook to negative from stable. Hardly the kind of legacy one should be leaving behind.